Hire Staff in Indonesia without Establishing a Local Entity.
Our employer of record services allow foreign businesses to hire employees and run payroll in Indonesia without first having to go through the expensive and time-consuming nature of setting up a separate legal entity. Using a PEO is one of the fastest and most cost-effective ways to deploy staff in Indonesia. Through this innovative platform, we assume all employer responsibilities while you maintain the daily control over staff.
As Asia’s leading PEO service provider, New Horizons uses best practices to develop compliant employment contracts that are recognized and approved by government agencies. Some of the employment laws that we consider when drafting employment contracts include:
Requirement for Written Contracts
Employment agreements in Indonesia that are of a fixed term must be written in Bahasa, the official language of Indonesia. These contracts are limited to two years. However, they can be extended for another year. Employment agreements of an unspecified duration are also permitted.
Working Hours in Indonesia
The standard workweek in Indonesia is 40 hours. This week is usually worked as 8 hours a day for five days a week or 7 hours a day for six days. If an employer requires an employee to work hours in excess of this, they are typically required to pay the employee at an hourly rate that is 1.5 times their base rate for the first overtime hour and 2 times their regular rate for any additional hours. The maximum amount of overtime in Indonesia is three hours a day or 14 hours a week. A written agreement regarding the request of overtime hours is necessary in Indonesia. This must be consented to by the employee. Senior-level positions are not paid overtime.
Public Holidays in Indonesia
Indonesia observes 14 public holidays. Typically, workers take off for the following days:
- New Year’s Day
- Chinese New Year
- Nyepi Bali Hindu New Year
- Good Friday
- Labor Day
- Ascension Day of Jesus Christ
- Ascension Day of the Prophet Muhammad
- Buddhist Holy Day of Waisak
- Ascension Day
- Eid al-Fitr
- Independence Day
- Idul Adha
- Islamic New Year
- Birthday of the Prophet Muhammad
- Christmas Day
Vacation Leave Laws in Indonesia
Indonesia labor laws require employees to receive paid leave of 12 days each year. Indonesia also has “Cuti Bersama,” which is shared leave that all employees take on the same day to encourage domestic tourism. The day or days for Cuti Bersama changes each year and is determined by the government. This time is usually deducted from the rest of the vacation leave.
Sick Leave Laws in Indonesia
Indonesia law does not require employers to provide a certain number of set sick days. A sick employee’s pay is reduced based on the amount of time that the employee has been out of work due to the following sickness, based on the following:
- 100% of pay – The employee receives 100% of their pay for the first four months of their sickness.
- 75% of pay – The employee receives 75% of their pay after the first four months.
- 0% of pay – Employers are permitted to terminate employees who have been sick for 12 months or longer.
Maternity Leave in Indonesia
Pregnant mothers are entitled to take three months of paid maternity leave of which half is used before the birth and half is used after the birth. Maternity leave is paid at the full amount of the mother’s wages. Fathers are entitled to two days of paternity leave.
Family Leave Benefits in Indonesia
Employees are also entitled to days of paid family leave in the following situations:
- Circumcision of the employee’s child
- Baptism of the employee’s child
- Marriage of the employee’s child
- Death of the employee’s child
Full salary is due to the employee for these situations, but the employer is not required to pay the typical allowances due the employee.
Employees are entitled to a bonus equal to one month’s salary after a year of service. This is considered a religious day allowance under the law and is paid the week before the religious holiday. Most employers provide this bonus before Idul Fitri. Some will provide the bonus in December. Employees who have worked less than one year are entitled to a prorated amount of this bonus.
Indonesia’s universal social security system covers all employees and residents under one healthcare system. A single employment benefit system will be in place by 2029. Payments to the social security system cover:
- Health insurance
- Occupational injuries
- Death benefits
- Pension benefits
- Provident fund
Residents of Indonesia are also subject to income taxes, which vary from 5% to 30%, depending on income.
Health Insurance Benefits
Indonesia has a compulsory universal healthcare system. Employers and employees share the costs of funding health care insurance, which are about 5% of earnings. Expats are also required to make these contributions.
Termination and Severance Laws in Indonesia
Indefinite term contracts can include a probationary period of up to three months, but a probationary period cannot be made part of a fixed-term project.
Employers are not required to provide notice before terminating employees. However, employees are required to provide notice 30 days before resigning. Severance pay is due at the time of termination of employment, but the amount varies based on the reason for the dismissal, according to the following schedule:
- Standard severance pay is equal to one month of wages for service of less than one year, plus an additional month of wages for every year of service, capped at nine months’ salary
- Long service pay is equal to two months’ salary after the first three years of employment, followed by one month’s salary for every three years of employment, capped at ten months’ salary
Severance pay can only be avoided upon the following reasons for termination:
- Voluntary resignation by the employee
- Severe chronic illness that has lasted more than one year
- Disability due to a work related accident
- Five or more days of missed work
- Grave misconduct
Compensation pay covers the following:
- Unexpired or untaken annual leave
- Relocation expenses to return the employee and his or her family to their original country of residence
- Medical and housing allowance, equal to 15% of the total severance pay
- Any other benefits required under the employment agreement
- Any other compensation amounts the Industrial Relations Court determines
Separation pay is a voluntary award in addition to other forms of severance pay and is regulated by the employment contract.
Benefits of a PEO
When you work with a PEO, you don’t have to worry about Indonesia’s complex employment laws because we take on all employer responsibilities. Some of the impressive benefits that you will receive by using a PEO include:
- Minimize costs and expenses by scaling your business up and down as your business needs determine and having expected and budgeted expenses
- Reduce risk and liability because the PEO takes on Employer of Record responsibilities and is responsible for staying compliant with various government regulations
- Offer benefits similar to those of larger companies because of our large pool of employees
- Increase productivity and efficiency by having highly trained experts and professionals take over tedious administrative tasks and utilize best practices
Make New Horizons Your Global Partner
New Horizons offers comprehensive PEO services that allow us to make your business operate faster and more efficiently. Some of the tasks that we can take on include:
- Manage your local payroll, make mandatory contributions and handle taxes in a compliant manner
- Provide workers’ compensation at discounted rates
- Administer employee benefits and comply with local labor laws
- Recruit local and foreign talent
Our tailored services often make our clients’ businesses more attractive to current and potential employees because we can compete with some of the largest employers in the area. Contact our local experts to learn more about our holistic services.